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Chapter Nine

Chapter Nine. Employer Taxes, Payments, and Reports. Performance Objectives. Calculate the amount of payroll tax expense and journalize the related entry

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Chapter Nine

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  1. Chapter Nine Employer Taxes, Payments, and Reports

  2. Performance Objectives • Calculate the amount of payroll tax expense and journalize the related entry • Journalize the entry for the deposit of employees’ federal income taxes withheld and FICA taxes (both employees’ withheld and employer’s matching share) and prepare the deposit coupon • Journalize the entries for the payment of employer’s state and federal unemployment taxes • Journalize the entry for the deposit of employees’ state income taxes withheld Accounting Is Fun!

  3. Performance Objectives • Complete Employer’s Quarterly Federal Tax Return, Form 941 • Prepare W-2 and W-3 forms and Form 940 • Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance • Determine the amount of the end-of-the-year adjustments for (a) workers’ compensation insurance and (b) accrued salaries and wages, and record the adjustments Accounting Is Fun!

  4. Chapters 8 and 9: Overview • Chapter 8 • Withhold employees’ taxes • Create liabilities (payables) • Chapter 9 • Pay off those liabilities • Calculate and pay employer taxes Accounting Is Fun!

  5. Employer Identification Number The number assigned each employer by the Internal Revenue Service Used to submit reports and payments for FICA taxes and federal income tax withheld Listed on all deposit slips Individuals have Social Security numbers Employers have employer identification number IRS uses both numbers to track taxes Accounting Is Fun!

  6. Employer’s Payroll Tax Expense • A general expense account used for recording: • FICA tax (employer’s share) • State unemployment tax (varies by state) • Federal unemployment tax • Paid by employer on behalf of employees Accounting Is Fun!

  7. Performance Objective 1 Calculate the amount of payroll tax expense and journalize the related entry Accounting Is Fun!

  8. Payroll Tax Components • FICA tax (employer’s share) • Calculate Social Security amount (using 6.2%, $84,9000 ceiling) • Calculate Medicare amount (using 1.45%) • State unemployment tax (SUTA) • Levied only on the employer in most states • Rate varies by state (book assumes 5.4%, $7,000 ceiling) • Pays subsistence benefits to unemployed workers • Federal unemployment tax (FUTA) • Levied only on the employer • Rate varies (book assumes 0.80%, $7,000 ceiling) • Used to administer federal unemployment fund Accounting Is Fun!

  9. Calculate Payroll Tax Expense • Take taxable amounts directly from payroll register • FICA tax (employer’s share) • State unemployment tax (varies by state) • Federal unemployment tax Accounting Is Fun!

  10. Calculate Payroll Tax Expense Do not use calculated amounts from employee’s deductions. You must take totals and recalculate amounts. (As a result there may be rounding differences.) Accounting Is Fun!

  11. Journalize Payroll Tax Expense Entry • Payroll taxes are an expense of doing business • Debit Payroll Tax Expense • Credit associated payable account Accounting Is Fun!

  12. T-Accounts: Beginning Balance Balance from employees’ deductions Accounting Is Fun!

  13. T-Accounts: Employer’s FICA Accounting Is Fun!

  14. T-Accounts: Employer’s SUTA Accounting Is Fun!

  15. T-Accounts: Employer’s FUTA Accounting Is Fun!

  16. T-Accounts: Total Payroll Tax Expense Total Payroll Tax Expense, journalized and posted Accounting Is Fun!

  17. To Summarize Accounting Is Fun!

  18. 1. Record Current Period Payroll in Payroll Register Accounting Is Fun!

  19. 2. Based on Payroll Register, Make Journal Entry for Employee Salary/Wages Expense Accounting Is Fun!

  20. 3. From Taxable Earnings Columns of Payroll Register, Calculate and Journalize Payroll Tax Expense Accounting Is Fun!

  21. 4. Journalize Cash Payments to Employees Accounting Is Fun!

  22. Performance Objective 2 Journalize the entry for the deposit of employees’ federal income taxes withheld and FICA taxes (both employees’ withheld and employer’s matching share) and prepare the deposit coupon Accounting Is Fun!

  23. Federal Tax Deposits • Include combined total of: • Employees’ federal income taxes withheld • Employees’ FICA taxes withheld • Employer’s share of FICA taxes • Made to authorized commercial or Federal Reserve banks and forwarded to U.S. Treasury • Timing depends on amounts owed (the more you owe, the more often you pay) Accounting Is Fun!

  24. Prepare the Deposit Coupon Accounting Is Fun!

  25. Journal Entry for Payments of FICA and Federal Income Tax Withholdings Reduces payables (liabilities) Reduces Cash Leaves payable accounts with zero balances after posting FICA Tax Payable DR CR - + 4,824.96 4,824.96 0.00 Employees' Federal Income Tax Payable DR CR - + 6,478.00 6,478.00 0.00 Accounting Is Fun!

  26. Performance Objective 3 Journalize the entries for the payment of employer’s state and federal unemployment taxes Accounting Is Fun!

  27. Payments of State Unemployment Tax (SUTA) Usually paid quarterly Due by the end of the month following the end of the quarter (same as Form 941) After posting, the payable account has a zero balance Journal entry looks like this: Accounting Is Fun!

  28. Payments of Federal Unemployment Tax (FUTA) Calculated quarterly (due dates same as form 941) If liability > $100, funds are submitted with deposit card After posting, the payable account has a zero balance Journal entry looks like this: Accounting Is Fun!

  29. Performance Objective 4 Journalize the entry for the deposit of employees’ state income taxes withheld Accounting Is Fun!

  30. Deposits of Employees’ State Income Tax Withholding • Deposited quarterly (due dates same as SUTA) • After posting, the payable account has a zero balance • Journal entry looks like this: Accounting Is Fun!

  31. Performance Objective 5 Complete Employer’s Quarterly Federal Tax Return, Form 941 Accounting Is Fun!

  32. Form 941 (Employer’s Quarterly Federal Tax Return) • A quarterly report showing the tax liability for withholdings of employees’ federal income tax and FICA taxes and the employer’s share of FICA taxes; total tax deposits made in the quarter are also listed on Form 941 • Due April 30, July 31, October 31, January 31 • See textbook for example Accounting Is Fun!

  33. Quarters • Three consecutive months • Also referred to as calendar quarters Accounting Is Fun!

  34. Performance Objective 6 Prepare W-2 and W-3 forms and Form 940 Accounting Is Fun!

  35. Form W-2 (Wage and Tax Statement) • Form containing information about employee earnings and tax deductions for the year • After last day of calendar year, employer must complete and furnish employee with at least two copies (before January 31) • One copy to the Social Security Administration • One copy to state (if appropriate) • Two or more copies to employee for: • Employee’s records • Employee to send to IRS • Employee to send to state and local tax agencies if those taxes withheld • One copy for employer’s records Accounting Is Fun!

  36. Accounting Is Fun!

  37. Form W-3 (Transmittal of Wage and Tax Statements) • Annual report (due Feb. 28) sent to Social Security Administration listing: • Total wages and tips • Total federal income taxes withheld • Total Social Security and Medicare taxable wages and taxes withheld • Must attach Copy A of employees’ W-2 forms • Total amounts must match grand total of W-2 and four quarterly 941 forms Accounting Is Fun!

  38. Accounting Is Fun!

  39. Form 940 (Employer’s Annual Federal Unemployment Tax Return) • Due Jan. 31, or Feb. 10 if payments made in full • Lists: • Total wages paid to employees • Total wages subject to federal unemployment tax • Total federal unemployment tax • Other information Accounting Is Fun!

  40. Accounting Is Fun!

  41. Performance Objective 7 Calculate the premium for workers’ compensation insurance, and prepare the entry for payment in advance Accounting Is Fun!

  42. Workers’ Compensation Insurance • Provides benefits for employees injured or killed on the job • Rates vary according to the degree of risk inherent in the job • Plans may be sponsored by states or by private firms • Employer pays premium in advance, based on estimated payroll for the year • Rates are adjusted after exact payroll is known Accounting Is Fun!

  43. Calculate the Premium in Advance Accounting Is Fun!

  44. Prepare the Entry for Payment in Advance Accounting Is Fun!

  45. Calculate Exact Premium at End of Year Accounting Is Fun!

  46. Performance Objective 8a Determine the amount of the end-of-the-year adjustment for worker’s compensation insurance, and record the adjustment Accounting Is Fun!

  47. Calculate Unpaid Premium and Make Adjusting Entry Accounting Is Fun!

  48. Performance Objective 8b Determine the amount of the end-of-the-year adjustment for accrued salaries and wages, and record the adjustment Accounting Is Fun!

  49. Year-end Adjustments for Accrued Salaries and Wages • Are there adjusting entries for wages expense and wages payable? • Yes, salaries and wages accrue between the last payday and the end of the year • Are there adjusting entries for FICA, federal income tax withholdings, or payroll taxes? • No • These taxes are not legal obligations until employees are paid Accounting Is Fun!

  50. Demonstration Problem Accounting Is Fun!

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